Home Front

A fascinating morning today at the Sutter Club where the Sacramento affiliate of the Urban Land Institute had William Hudnut in for a morning address to about 100 public- and private-sector land use attorneys, real estate consultants, developers, architects and urban planners.

Hudnut is best known as the mayor (1976-1991) who inspired and shepherded the revival of Indianapolis, and has ever since been a big advocate of cities.

We have a story in tomorrow's paper, but the main takeaway point for me was that when this real estate downturn runs its course, the next housing boom will occur under a wave of new environmental legislation that aims to limit greenhouse gases - and clamp down on cars.

Though it's extremely hard to break the familiar development patterns of single-family homes on empty land in suburbs, these rules could well force more growth inward to existing neighborhoods. The rules aren't voluntary and there's likely to be more coming down the line, was the consensus of speakers.

Hudnut calls this the "Re-century."  Reinvesting, rebuilding, revitalizing and re-engineering.

He had a lot of nice things to say about Sacramento as home to the SACOG "Blueprint" to make growth until 2050 more land efficient. He praised California, home of AB32 to limit greenhouse gases to 1990 levels, and SB375 to tie development patterns to that goal.

"You seem to get it," he said. "A lot of the country doesn't."

 He also praised the walkability of Midtown after a Monday evening reception at the L Street Lofts. He said, "I love the architecture that's been preserved. I love your commitment to historic preservation and the beautiful green space a visitor like myself can enjoy."

(Afterthought, hours later: There's one thing worth noting about any big expectations that housing patterns will change greatly. The California Air Resources Board says changes in development patterns by 2020 will, indeed, trim greenhouse gas emissions - but that nine times more emissions reductions will come from cleaner, more fuel-efficient cars that are still our dominant form of getting around. For all the talk of getting people out of their beloved cars, transit is still only about 2 percent of all trips in the capital region, a fact that shows the continuing challenge of changing behavior to meet climate goals)

     We might never know exactly what happened in that closed-door auction for Gottschalks in Wilmington, Del., Monday. My hunch is, it wasn't much of a fight. A group of four liquidators, who had already been designated lead bidders, won the auction and will likely begin the going-out-of-business sale as early as Thursday.

    The lead bidders tend to win these bankruptcy auctions, so the outcome in Wilmington wasn't a big surprise. The other bidders were another liquidating group and a Chinese merchant, Shandong Commecial Group; Shandong was the only bidder of the three that was planning to keep Gottschalks open.

     The story broke late Monday and only made it into some home-delivered papers in Sacramento this morning. Here's the story Tim Sheehan wrote for this morning's Fresno Bee.

  We're working on our own story for Wednesday's Sacramento Bee, examining the economic implications. Here's a sneak preview: The implications are bad.

     Joe Penbera, a Fresno economist who's Gottschalks' lead director,told me that with the "multiplier effect," Gottschalks' 5,000 jobs really have an economic impact of up to 15,000 jobs. So losing Gottschalks is like losing a decent-sized Central Valley town, he said.

 

Tuesday update: final version of the story.

Yuba County has forever wrestled with an image of being bottom for this and worst at that, but here comes another blow: It's the toughest place in America to be paying a mortgage.

That's from SMR Research in New Jersey. An astounding 77.7 percent of its collective mortgage debt is tied to homes that are worth less than the loan on them.

If Yuba County is the worst in the United States, right behind are the usual suspects: Merced, San Joauin and Stanislaus counties, followed by Clark County, Nev. (Las Vegas).

Here's an advance peek at chart material running with the story tomorrow:


County                         % mortgage debt tied to         % of borrowers "underwater"                                     "underwater" homes       

Yuba                                         77.1%                               60.3%
Sutter                                       69.3%                               51.3%      
Sacramento                              65.4%                               50.1%
Placer                                        49.5%                              34.6%
Yolo                                           48.4%                               33.9%
El Dorado                                   39.2%                              24.4%

Source: SMR Research  

Thanks to the alert reader who sent this fascinating story in The Atlantic, arguing that this economic, housing and financial crisis isn't really going to get fixed right until the government nationalizes U.S. banking giants and breaks them into smaller pieces.
 
This thesis could be easy to overlook and ridicule, but the author is a former top official at the International Monetary Fund. Agree with him or not, it's a very interesting read.

 No bank, he argues, should ever again be too big to fail.

    There's nothing particularly shocking about this, but it jumped out at me anyway: The economy is forcing Californians to park their cars even though fuel is (relatively) cheap.

   Gasoline consumption fell 4.8 percent in the fourth quarter of 2008, compared with a year earlier, according to numbers released today by the Board of Equalization.

    Mind you, consumption tends to fall a bit when gas prices jump up. But during the fourth quarter prices fell by half, to around $1.80 a gallon by year end. By comparison, prices hovered in the $3 range during most of the fourth quarter a year earlier.

    Clearly the economic shock that began with the failure of Lehman Brothers in September nudged motorists into hibernation even as pump prices were plunging.

    Even more telling, perhaps: Diesel consumption fell nearly 10 percent, a sign that truckers were parking their rigs and hauling fewer goods.

 I had an interesting  phone conversation today with Stuart Feldstein of New Jersey-based SMR Research,who is always prolific with the newest relevant statistics.

 We were talking about these banking giants like JPMorgan Chase, Bank of America and Wells Fargo being weighed down by the problem portfolios absorbed with the likes of Washington Mutual, Countywide and Wachovia. He said that is partly why we're seeing the number of loan modifications way up from last June.
 
"Obviously, they are ramping up," he said.

The statistics: Chase had modified $856 million worth of mortgages as of June 30, 2008. As of year's end it had modified $7.9 billion, he said.

Wells Fargo had modified $1 billion worth of mortgages as of June 30. By the year's end it had nearly tripled the number, to $2.78 billion.

Citigroup is the leader for loan modification, he said. By last June 30, it had already modified $17 billion worth of mortgages.

Total mortgages out there: $11 trillion, he said.

    We like to think that California's got it the worst. That was the case the last two recessions, when aerospace fell apart in the 1990s and the dot-com's imploded in 2001. And with all the foreclosure activity going on, we figured Calfiornia was the biggest victim of the current recession.

    Maybe not. Palo Alto economist Stephen Levy looked at the latest state-by-state job numbers, just out from the Bureau of Labor Statistics, and determined that at least 10 states are losing jobs at a faster pace than California.

     Over the past 12 months, California has lost 4 percent of its jobs - a pretty hefty figure. It's elevated the state's unemployment rate to 10.5 percent. (That's tied with Rhode Island for fifth highest).

   In terms of year-over-year percentage job loss, nine other states are in worse shape than California. Arizona is doing the worst, having lost 6.7 percent of its jobs in the past year. (Although its total unemployment rate is "only" 7.4 percent.

     Next in terms of job loss is Michigan at 6.5 percent, then Nevada at 5.2 percent.

    Levy, head of the Center for Continuing Study of the California Economy, makes another interesting point: Business folks often lament about the loss of California jobs to neighboring states, but California's neighbors are among the biggest bleeders: Arizona, Nevada and Oregon (which has lost 4.7 percent of its jobs).

    Here's a link to the state-by-state numbers from BLS.    

    There was a chance Gottschalks was going to have to announce its liquidation Thursday. But a Chinese government-owned conglomerate that wants to keep Gottschalks open leapt into the bidding for the Fresno department store chain.

   That means when the auction begins Monday, there's a chance the retailer will survive. But the Chinese firm, a retailing and real estate firm called Shandng Commercial Group General Corp., will have to outbid two liquidating groups. One of the liquidating bidders, a group including Great American Group, has the upper hand because it's been designated lead bidder or "stalking horse."

   That means it gets paid a breakup fee of about $1 million of it loses the auction. That's not a trivial sum as these things go.

    Great American was the lead bidder in the Tower Records bankruptcy auction in 2006 and won a two-day auction for Tower's assets, outbidding the owners of the FYE record store chain. The going-out-of-business sale began the next morning.

    Another parallel with the Tower story: Gottschalks and Tower employed the same bankruptcy law firm in Delaware, Richards Layton & Finger. As in 2006, Monday's auction will be held at the firm's office in downtown Wilmington, about two blocks from U.S. Bankruptcy Court.

     We should know the outcome of the Gottschalks auction Monday or Tuesday. Stay tuned.

U.S. Rep. Doris Matsui, D-Sacramento, has introduced HR1764 to steer TARP money not spent by ailing American banks to Obama Adminstration programs to refinance and provide loan modifications to struggling homeowners in cities like Sacramento.

The  news release on the bill.

Mortgage giant Freddie Mac's 

newest weekly survey shows the lowest rates since it began keeping records in 1971. 

The Federal Housing Finance Agency also released a report showing rates averaged 5.03 percent nationally in February.

 I am remembering my wife and I's first mortgage in the late 1980s - in the 10 percent range.

     The Gottschalks drama - will they survive or won't they? - might be settled as early as today. At some point the Fresno retailer's bankruptcy lawyers will file papers in court declaring whether anyone else is planning to bid on Gottschalks' assets.

    So far there's only one bid in hand - from a consortium of liquidators. Those are the so-called lead bidders who surfaced a couple of weeks ago. 

     Late yesterday, our colleagues at the Fresno Bee reported that two other companies might bid. One is another liquidator, Gordon Brothers. The other is an as-yet unnamed Chinese company interested in keeping Gottschalks open.

    If one or both of those bidders do indeed make a run at Gottschalks, then an auction will be held next week at Gottschalks' lawyers' office in Wilmington, Del.

    Of course, if the Chinese bow out and only Gordon Brothers enters the auction, there won't be a lot of suspense. It will be a duel between two groups of liquidators for the right to conduct a going-out-of-business sale.

    UPDATE: The Chinese are in. A firm called Shandong Commercial Group General Corp. is entering the bidding, with the intent of keeping Gottschalks open. Gordon Brothers is bidding, too.

     More details here and in Friday's paper.

    How does 12 percent unemployment sound for California?

    It wasn't that long ago that jaws were dropping when a few economists said statewide unemployment would hit 10 percent. Now we've blown right past that; the current rate for California is 10.5 percent.

     Today Jeff Michael at the University of the Pacific chimed in with his quarterly forecast: California unemployment will peak at somewhere just north of 12 percent in late 2009. That would be the highest since modern records were kept, starting in 1976, eclipsing the old record of 11 percent reported three times during the early-80s recession.

   Rates won't come back to single digits until late 2011, he added.

    When it's all over, California will have lost 950,000 nonfarm jobs, he said. Throw in the cutbcks in agriculture, thanks to the water shortages, and the total job loss will approach 1 million.

    Michael also said manufacturing will lead the decline in job losses this year, with 150,000 jobs disappearing.

    The UCLA Anderson Forecast comes out Wednesday.

 Consumer advocates are having a

news conference and Senate hearingTuesday at the state Capitol about the scams that are further victimizing Californians at risk of foreclosure.

UPDATE: Here is 11 minutes of news conference video highlighting the issue.
 

   I was in the San Joaquin Valley the other day, doing some reporting for an upcoming story, and things aren't pretty there.

    I spent the day in Merced, where unemployment has risen to 19.9 percent, but the misery isn't confined to that community. The unemployment rates around the Valley are staggering: 16.4 percent in Fresno, 14.7 percent in Bakersfield, 15.8 percent in San Joaquin, and so on. Just to the north of us, it's 19.1 percent in Sutter and 18.6 percent in Yuba.

       Things look like they're going to get worse in the Valley before they get better. Today we reported on the latest signal that Gottschalks' bankruptcy is going to wind up with the retailer going out of business. The Fresno institution is already peddling its store leases, even though the formal auction for its assets isn't until next Monday.

The good news is that Sacramento-area home prices are now declining slower than California as a whole. But that's about where the good news ends in a national report on January sales prices by one of the gold standards of the business: First American CoreLogic.

 The firm's Loan Performance Home Price Index (HPI) shows a collective 25.16 percent decline in resale home prices from Jan. 2008 to Jan. 2009 in El Dorado, Placer, Sacramento and Yolo counties. 

That compares to 26.7 percent in California as a whole, and 11.6 percent nationally.

Worse than Sacramento: Riverside-San Bernardino, Miami, Las Vegas, Oakland-Fremont and Fort Meyers, Fla. 

 About the same: Los Angeles-Long Beach.

Doing a little better than Sacramento is Phoenix, Fort Lauderdale, San Diego, Orlando and Tampa-St. Pete.

Where did prices actually rise over the year?

Texas:

• up 1.54 percent in Dallas
• up 3.58 percent in Houston
• up 3.92 percent in Austin

This from the firm in explaining its methodology: 

 "The LoanPerformance HIP is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate 'constant-quality' view of pricing trends than basing analysis on all home sales."

Some of the big banks are talking about giving back their TARP money to the federal government. Sacramento Congresswoman Doris Matsui argues those funds should go straight to President Obama's Making Home Affordable program for struggling borrowers.

Here's a news release with details released Friday and the letter from Matsui and several colleagues to Treasury Secretary Geithner.

 

JPMorgan Chase opened its walk-in Sacramento foreclosure prevention center this morning with a 9 a.m. briefing for nonprofit loan counselors who have helping some of the bank's troubled clients.
Not much of a crowd at opening time, 11 a.m.

 

From the story running tomorrow:

They're nothing too special, just a long gray row of cubicles on the second floor of a Washington Mutual Bank building near Arden Fair Mall.
 But up there, next to an airy conference room, is one of the nation's first lender-owned walk-in centers for people struggling with their home loans.
  JPMorgan Chase opened it - one of seven in California and 24 nationally - Friday at 1950 Arden Way. The aim: to help more Sacramento-aera borrowers avoid foreclosuer on housing boom loans made by Chase, Washington Mutual and EMC.

For more information: 916-567-5340. There's one in Stockton, as well: 400 E. Main, 209-460-2450.

In an email from Germany this week, reporter Stefan Wagner says he is coming to Northern California in about 10 days to do a magazine story "on the effects of the financial crisis on Californians." He has done some preliminary research and found that Merced has the state's highest foreclosure rate - and would like to interview people in the foreclosure belt (my description)  who are in process of losing their homes.

I promised to post the request here. "Focus" is one of Germany's leading magazines. If you'd like to tell your story to people in Europe contact Wagner at s.wagner@focus-magazin.de. Or if you have ideas for him I am sure he'd appreciate those too.

As many of you know, the problems that Californians have had paying their housing boom mortgages has weakened many of the international financial institutions who bought those mortgages as investors. I have a sense that might be part of the reason for German interest. Their banks are taking a pounding because they invested in mortgage-backed securities, many tied to foreclosed homes in California.

All the breathless media coverage of the Fed's decision this week to spend another $1.2 trillion to buy mortgage-backed securities and more Fannie Mae and Freddie Mac mortgages insinuated that interest rates would take a quick and deep dive into 4 percent territory.

So far. Wrong. Brent Wilson, a loan consultant with Comstock Mortgage, just told us that they haven't really moved that much since the Fed actions. Mortgage rates Friday were 4.75 percent with points and 4.875 percent with no points. Not bad, but not 4.5 percent or less.

Check out this video featuring Bankrate's Holden Lewis for a great explanation of what it all means.He says there will be no sustained lending at 4.5 percent or less.

Also here from Bankrate, are a summary of national average interest rates the past week (before points):

3/12/2009  5.12
03/13/2009 5.09
03/16/2009 5.11
03/17/2009 5.16
03/18/2009 5.15
03/19/2009 5.06

    There appears to be some movement on LandSource Communities Development, the huge real estate  debacle that will likely cost CalPERS almost $1 billion. The Wall Street Journal reported today that homebuilder Lennar Corp. is negotiating to buy much of LandSource's properties at a discount.

     The negotiations are between Lennar and LandSource's creditors, according to the Journal. Many of the creditors apparently would partner with Lennar in a new company that would buy much of LandSource's land, including the big Newhall Ranch development near Los Angeles.

     CalPERS invested $922 million in early 2007 to buy a majority stake in LandSource from Lennar. LandSource filed for bankruptcy protection last summer. As an equity holder, CalPERS is likely to be left with nothing once the case is resolved, which is typical in most bankruptcies.

 

Wednesday, I sat for three hours before the California Senate Banking Finance and Insurance Committee hearing on plans by the Obama Administration and State of California to rein in foreclosures. These are the kind of places where experts come wtih facts and figures and quotes:  Here's a few from the reporter's notebook:

• "There's just an ungodly number of faxes that get lost when we send them to (loan) servicers. We have to re-send and re-send and check in two weeks."  - Martha Lucey, President and CEO, By Design Financial Services.

• There are still 530,000 licensed real estate agents and brokers in California despite this downturn. - California Department of Real Estate.

• "Last year there were two foreclosures per minute in California and 60 will lose their homes during this hearing." - Sen. Ron Calderon, D-Montebello, and committee chairman.

• "Every day, 1,000 people in California are being notified of having a Notice of Default and predators are preying on them." - Jeff Davi, Commissioner of Department of Real Estate.

• "We estimate there will be 460,000 foreclosures this year in California and 1.5 million over the next four years - one in every four mortgages existing today. That's absent the effectiveness of these programs." - Paul Leonard, California director, Center for Responsible Lending.

•  45 percent of loan modifications end up costing the borrower a HIGHER monthly payment. (That's with late fees, penalties and adding unpaid amounts to back of mortgages. The amount owed grows and pushes up the monthly payment for people who were in trouble with the payment in the first place. And this explains why half of last year's modifications ended up with re-defaults) -  Paul Leonard, CRL.

• Wells Fargo services 9 million U.S. mortgages, about one in every six. Collectively, they are worth $1.5 trillion in unpaid balance. The bank did 706,000 foreclosure prevention solutions last year, about 22 percent of the U.S. total.

•   30 percent of the bank's loan modifications return to delinquency after the initial modification. - Joe Ohayon, VP, community and client relations, default and retention operations.
  

• Credit unions in California and Nevada have $54.1 billion in real estate loans, consisting of firsts, seconds and home equity lines of credit.Their foreclosure rate is 0.16 percent. About 1.35 percent of credit union mortgages are 60 days or more late. Credit unions have already modified 72 percent of these delinquent loans - without being pressured by the government to do so. - Melissa Ameluxen, director of state government affairs, California and Nevada Credit Union League.
  

Attorney General Jerry Brown announces the arrest of two more alleged scamers in Southern California.

MDA DataQuick is in with February sales numbers: Here's the first online version of story.

And here's a  chart with all the numbers.

 

   We all know, of course, that this whole mess started with the housing market. But how did a bunch of loopy mortgages mushroom into an all-encompassing threat to the global financial system?

     Finding an understandable answer for that has proven difficult, at least for me. I'd like to call your attention to this piece in Wired magazine - it talks about credit default obligations and other intricacies of the markets in fairly down-to-earth language.

    The story isn't long, but it will take you some time to get through. You should read it carefully. It's a fascinating tale about one economist's mathematical formula, and what happened when legions of financial traders took the concept behind it and ran it into the ground. When you're done, you should have a decent idea about what happened to our financial system and why.

     Enjoy.

 It's been a long time coming for borrowers struggling with mortgages from Washington Mutual, JPMorgan Chase and EMC. But Chase is finally opening one of its 24 U.S. regional centers for personal one-on-one loan counseling and workouts on Friday in Sacramento.
Chase is opening another on Thursday in Stockton at 400 E. Main St. (209) 460-2450.

Customer hours at both locations will be 11 a.m. to 8 p.m. Monday through Friday. Saturday hours are 9 a.m. to 1 p.m.

Here are the news releases from Chase announcing the centers:

Chase Amplifies Foreclosure Prevention Efforts in Sacramento

Advisors will work face-to-face to help keep families in their homes

WHAT:   Chase officially opens its Sacramento Homeownership Center, one of four new homeownership centers in Northern California to help families struggling with their mortgage payments.  Chase plans to have nine centers in California to help borrowers who have a home loan serviced by Chase, Washington Mutual or EMC - all now part of JPMorgan Chase. It will have 24 centers around the country by the end of March.

WHO:    Chase home loan executive Cynthia Thompson and community partners that focus on homeownership preservation

WHEN:   Friday, March 20, 2009

9:00 AM - 10:00 AM

WHERE:  Chase Homeownership Center

1950 Arden Way

Sacramento, CA 95815

(916) 567-5340

The other California facilities are Sacramento, Oakland, Santa Clara, Glendale, Santa Ana, Rancho Cucamunga, Downey and La Mesa/San Diego.  Other cities for Homeownership Centers include Aventura, Miami, Fort Meyers, Orlando and Tampa, Florida, Washington, D.C., Atlanta, Detroit, New York, Philadelphia, Phoenix, Denver, Chicago and Las Vegas.

    You may have read that The Bee's owner, The McClatchy Co. of Sacramento, is struggling a bit these days. Part of the problem, besides the slide in profit and revenue, is the $2 billion in debt left over from McClatchy's 2006 purchase of Knight Ridder Inc.

    Now word comes from the Wall Street Journal that Florida investment fund manager Bruce Sherman, who essentially forced Knight Ridder to sell out, is retiring.

    Sherman's Private Capital Management was a big Knight Ridder shareholder, and he led an investor revolt that forced the San Jose chain to put itself up for sale. McClatchy took the prize, paying about $6 billion, including debt assumption. Now the remaining debt is something of an albatross around McClatchy's neck.

     The Journal's story says Sherman's investments in the newspaper industry, including a stake in New York Times Co., didn't fare too well. Sherman more or less broke even on his Knight Ridder investment, as McClatchy wound up paying about $60 a share for the company - about what Sherman paid for his shares.

   

We don't know what it means for sure, but after 10 straight months of price declines, the collective median price in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties stabilized in February.

 MDA DataQuick has the numbers and analysis here.

"The market is so tilted away from normal mainstream activity that it's impossible to generalize or predict based on the atypical patterns we're seeing. That means that normal demand and supply is building up. The floodgates could open once mortgage credit starts to open up," said John Walsh, MDA DataQuick president.
 
Results from the Bay Area and February are expected later this week.

Builder Online just announced its Top 10 Builders for 2008. Interesting list. Just about all of them are in or near the Top 10 Sacramento-area builders as well.

 There's been a slew of broadcast and print reports out today about an unexpected rise in housing starts in the U.S. in February - and if it signals a ray of hope that things are getting better.

  It's not happening here, apparently. The Construction Industry Research Board, the authority on building permits in California, doesn't have February numbers compiled yet. And frankly, I don't know where the Commerce Department gets its numbers.
 
I called John Orr, president and CEO of the Roseville-based North State Building Industry, and he certainly doubted there's been any February uptick here.

 "We don't have the numbers, but my guess would be we're not likely to see that kind of improvement here in the month of February," said Orr. He cited the continuing excess of new homes for sale and "a large inventory of homes running into foreclosure."

  "Right now there's not a great deal of motivation to be putting sticks into the ground," he said.

Taking a look back at January: home builders in El Dorado, Placer, Sacramento and Yolo counties received permits to build 179 homes, a 27 percent dip from the same month in 2008. Builders in Yuba and Sutter counties got just one new-home permit, a 95 percent drop from Jan. 2008. Statewide, January home building permits were down 57 percent from the same time in 2008.

 

That's the question Wed., March 18,  when the state Senate Banking Finance and Insurance Committee convenes for an informational hearing on the Obama Administration's Housing Affordability and Stabilization Act and a new bill, SBXX7 signed by Gov. Arnold Schwarzenegger, to add another 90 days to the time needed by lenders to foreclose in California.

The hearing runs from 1:30 p.m. to 4 p.m. in Room 112 at the Capitol.

 Chairman of the committee is Sen. Ron Calderon, D-Montebello.

There's some concern that the two anti-foreclosure initiatives may overlap in ways that confuse lenders, and perhaps make something relatively simple into something more complex and thus, less helpful to borrowers. Hence the question: will these government plans finally get more people the help they need to stay in their homes?

Here is the agenda with speakers from the state regulatory agencies, consumer advocates and lending industry reps.

And here is a Senate Banking Finance and Insurance Commitee  background paper  for context. 

 

    A group of reporters and editors sat around a conference table the other day discussin recession coverage. We're going to be rolling out more stories in the coming weeks on how people can cope with the economic downturn, and naturally a lot of the stories will include tips on saving money.

    Good advice, of course, but it raises the "paradox of thrift" issue. Namely, it's not necessarily good for the economy if everyone grows their own vegetables, knits their own sweaters or does something truly catastrophic - like cancel their newspaper subscription.

    I'm going to be working on a story about that very issue in the next couple of weeks and would love to hear from you. Email me at dkasler@sacbee.com if you live in the Sacramento area and are willing to be interviewed.

    In the meantime, Newsweek magazine offers its take on the subject.

  It's almost unbelievable today that the old language still exists. But many housing deeds across California still have those clauses saying the home can't be sold to people of certain religions, nationalities and ethnicities.

 Assemblyman Hector La Torre, D-Los Angeles has introduced legislation again to once and for all strike this language from deeds.

The bill is AB985.

The New York Times takes a new look at the phenomenon of "walking away" from a troubled mortgage and house. It offers a lot of answers to questions about taxes and other things people always wonder about, too.


"In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it's almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can't work things out with your lender, you probably won't be sued. You shouldn't receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable."

Routinely, we get news releases from the Contractors State License Board detailing its stings on unlicensed contractors. This item, however, is worthy of Jay Leno or David Letterman:

The sting also revealed the extent to which unlicensed operators will go to try and stop their unlicensed competitors.  John Fiore, 43, of Farmersville, who goes by the name "Tree Trimming Monkey," was arrested Wednesday at the Visalia sting.  Prior to the sting, Fiore allegedly called an unlicensed competitor, saying he was a consumer who would pay him $1,000 to cut down five trees on his property.  That competitor cut down the 80-year-old trees, then went to the consumer for payment.  The consumer was completely unaware of the job arrangement.  The value of the trees cut down was $20,000.  Fiore will now face felony vandalism charges with special allegations since it is believed he has served prison time for crimes that include vehicular hit-and-run that resulted in death, arson, and selling methamphetamines. 

   Hi again. Sorry I've been kind of out of touch lately. If you missed it, I've been busy writing about the Folsom Ponzi scheme. Our latest angle is that when the economy goes bad, the internal workings of the Ponzi creaks to a halt because the flow of new money dries up.

    Anyhow, on to something new: California's export market, which had been one of the mainstays of the state's economy last year, continues to weaken. Our friend Jock O'Connell, an international trade expert in Sacramento, crunched the latest numbers from the US Department of Commerce and found that exports from California dropped nearly 22 percent in January, to $8.66 billion. That's a difference of about $2.4 billion from a year ago.

    Exports of factory goods fell 21 percent. Exports of nonmanufactured goods (mostly farm products) fell 28 percent.

   O'Connell said this represented the third straight monthly decline and reflects the worsening in the global economy.

In Nov. 2007 I had a long lunch with Scott Thompson, principal at Mortgage Resolution Services in Carmichael, that really just about blew my socks off. Thompson put forth a pretty serious scenario about where this economy might be headed - and referred me to an article by MSN Money's Jon Markman who was interviewing credit derivatives expert Satyajit Das.

I remember it vividly because people like the head of Morgan Stanley were saying we were in the 6th inning or so of getting through this. And Das said that actually we were still singing the National Anthem. It was a time when I was just starting to get my head around the complicated world of global mortgage finance that was starting to unravel.

 In Nov. 2007 when I first read that article the median priced home in Sacramento County sold for $290,000 - down 18.3 percent from $355,500 in Nov. 2006. That was a time when you could start to smell the gathering fear in the air.

 The article Thompson recommended - this one dated Sept. 20, 2007 - portrayed the very harsh economic landscape soon to unfold. Today, I stumbled across it again for the first time in ages and I see why it scared the daylights out of me then. Much of it has come to pass.

It's been 18 1/2 months since that story ran as a warning. In January, the median-priced home in Sacramento County sold for $165,000 and people are still trying to see where this all ends.

Three big foreclosure reporting companies have filed their February reports and all say that  foreclosures during the month were up sharply over January - even with all the moratoriums.

Here is the complete February report from  Fair-Oaks based Foreclosures.com, the newest from ForeclosureRadar based in Contra Costa County and the February count from Irvine-based Realty Trac.

 

 

The February sales numbers are starting to arrive for the capital region.

Researcher TrendGraphix says the number of bank repos  coming onto the market has slowed greatly. Credit the foreclosure moratoriums that have been playing out.

February sales are up 84 percent from the same month last year.

Lyon Real Estate head Mike Lyon said the upper-end of the market is pretty stressed. Sales of homes above $500,000 are down 37 percent from a year ago and the number of them for sale is up by 6 percent.

Inventory overall, however, continues to fall. March opened with 8,6,29 homes for sale in El Dorado, Placer, Sacramento and Yolo counties. Bank repos accounted for 1,797 of the listings. (Remember, that number in mid-2007 was in the 16,000s as people scrambled to sell their houses before prices fell further).

Placer County has also just announced  its February sales numbers. The data from the Placer County Association of Realtors shows 224 sales, a drop from 253 in January.

It's also fewer than the 247 last year in February.

The median price is $289,000 - where half cost more and half cost less. That's up from $270,000 in January.

   You're not in alone. California consumer confidence has fallen again, according to a quarterly survey by Orange County's Chapman University.

     Confidence slipped 8 points from the fourth quarter, according to the university's California Composite Index of Consumer Confidence. The index now sits at 58.2 points, close to the record low of 57.6 in the second quarter of 2008.

    Any reading below 100 says consumers are generally pessimistic.   

    Well, at least gasoline prices are behaving themselves.

    AAA's monthly survey showed average prices for California fell 3 cents a gallon in the past month, to $2.20. The average in Sacramento fell 7 cents, to $2.19.

    But AAA said the decline is probably temporary, especially with OPEC hinting about production cuts. The conversion to eco-friendly (but harder to make) summertime fuel blends also has the tendency to push prices up.

   All of this is little consolation to folks in Tahoe City, which has the highest average price ($2.60)  of any market surveyed by AAA in the lower 48 states. (Before you email me from rural California: Yes, I know you have even higher prices, but your communities aren't surveyed by AAA so that's why they don't get mentioned in these stories or blog posts).

    My colleague Mark Glover will have a more complete report in Wednesday's Bee,. 

 It was only four months ago in fall, when "the city of trees" looked like this.

 Now it's spring again in the neighborhoods. Here's a look at trees blooming in Sacramento as spring comes back to the Pocket.
  

It was a long-running story about a proposed development project in the Pocket's Riverlake area and the "Pocket Protectors" who sued to stop it. Fears abounded that an infill project with smaller homes would pull down the nice neighborhood's ambience and property values.

But that's become history. The 139-home Islands at Riverlake project by Regis Homes of Sacramento is up to 40-plus homes and expectations of 36 sales by next week. Prices are ranging from $300,000 to about $400,000 for the homes now.

I wrote about this project a couple of years ago when it was just five model homes and a unique design in which the fronts and backs of homes looked much the same. It was sort of an optical illusion that made the houses look bigger from the street and thereby, fit in better into the neighborhood. At the time, Regis Homes started the project with a lawsuit by opponents still unsettled. If they had prevailed it's possible Regis would have had to tear down what it started.

We are planning to revisit the story in Friday's Home Front column now that the court challege is history and the project is rising. In the meantime here are three videos.

A frontal view

A look at the inside



The view through the windshield

    When people aren't asking me about The Bee's future, they want to know whether the SF Chronicle will survive. (The paper is wildly unprofitable and Hearst Corp. has threatened to sell or close it unless its unions make steep concessions).

    Here's an update - editorial workers have agreed to take concessions. Next up: negotiations with the Teamsters.

    The Chron's story is here.

The state Department of Corporations has issued its 2008 report on voluntary loan modifications by lenders that are part of a 2007 agreement with Gov. Arnold Schwarzenegger. It shows the modifications are up and the foreclosures are down. But there's still a long ways to go.

To look at the report, which covers about half the home loan universe in California, visit the DOC's subprime loan agreement page here. Check out the March 9 news release.

Here is our story this morning with some perspective.

  Hi again. Got kind of busy Monday with some in-house stuff (the layoffs at The Bee and its parent, McClatchy) but now I'm ready to re-engage on the nuts and bolts of the area's economy.

    Which brings us to another sad story in retailing: the end of Organize It, a Citrus Heights store that sells all sorts of containers, shelving units, etc., for organizing your home.

    The store will close April 5 after 21 years on Sunrise Boulevard, says owner Charles Pattillo. He'll keep open his Web business, which operates at www.organizeit-online.com and www.organizeworld.com.

    He says business at the brick-and-mortar location dropped in half since he bought it six years ago.

California Attorney General Jerry Brown announces jail time for participants in a particularly brazen loan modification scheme in Southern California. 

 Be watchful for anyone who wants to help you out of your jam with the mortgage.

Monday update: Here is the Sunday story about "walkaways" and it's getting lots of reaction

 

I have a story coming this weekend about the reluctance of many borrowers to keep paying on homes bought or refinanced during the boom. They are "underwater" - that is, they owe more than their homes are worth.

As part of the research I requested from MDA DataQuick a ZIP Code-specific look at what percentage of homes are in this condition. The data are being made into a map for the story, but here is a sneak peak at 86 capital-area ZIP Codes in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties.

 If your ZIP Code isn't listed it's because you live in one with fewer than 500 people.

Much of this isn't too pretty, and it's surely the cause of a lot of sleepless nights for people who live in the capital region.

- 36.1 percent of Sacramento County homes are underwater.

 It's 37.2 percent in Yuba County and 25.6 percent in Sutter County.

 The underwater tally is 15.9 percent in Placer County, 12.5 percent in Yolo  County and 10.6 percent in El Dorado County.

 For California as a whole: 26.1 percent.

Check the link above to see how your ZIP Code is faring.

 

 

 

 

 

 

 

 

 

    The Gottschalks drama seems to be moving toward an unhappy end. Our friends at the Fresno Bee have posted an online story saying a liquidating firm has been chosen as the lead bidder for the department store chain, which is operating in Chapter 11. We've just confirmed the story ourselves.

    Having a liquidating firm in the lead position doesn't mean liquidators have wrapped up the deal. Others can outbid the liquidators at an auction set for March 30.

    But the lead bidder, also known as the "stalking horse," has the inside track. Someone who outbids the stalking horse has to pay the horse a breakup fee - up to $995,000 in this case, according to court documents. In effect, the Great American team can buy Gottschalks for less money than anyone else. These additional costs can make all the difference at auction time.

   The lead bidder for Gottschalks is actually a team of liquidators, including Great American Group of Chicago. You may recall that Great American was lead bidder in the bankruptcy auction for Tower Records in 2006. It emerged victorious in the end, nudging out record store chain FYE. FYE planned to keep Tower open.

       We'll have more in Saturday's paper.              

Update: Apologies for the earlier bad link. I think we have it right now.

Editors assigned me yesterday to dig up phone numbers and Web sites to help capital-area residents with mortgage problems hook up with the Obama Adminstration's new $275 billion Housing Affordability and Stability Plan.

It's all in the print edition this morning, starting on the bottom of A1.

Here's a link to the online version to get you headed toward help.

 

 The Sacramento Green Home Expo, launched last year by the Roseville-based North State Building Industry Association, is making a return engagement on Friday, April 3, at the Sacramento Convention Center.

Details are in this news release.

 "The Sacramento Green Home Expo was created as a forum for increasing awareness of energy and environmental challenges, showcasing green products and services, and educating the public and corporate world on the many innovative ways to go green."

 

    Well, not really. 

    Sacramento's new unemployment rate of 10.4 percent is the highest under the current calculation method, which took effect in 1990.

    I went digging through our microfilm and found that unemployment hit 12.9 percent in January 1983. But comparing the two is a bit of an apples-to-oranges thing, in part because the boundaries of official Sacramento have changed.

       In 1983 the metropolitan statistical area for Sacramento covered three counties: Sacramento, Yolo and Placer. Today the MSA includes a fourth county, El Dorado.

      The important thing is, don't get too hung up on whether this is a record or not. What's clear is that it's bad. The rate is 10.4 percent and rising fast (The rate for December was 8.8 percent).

      The retail employment numbers might be the most striking. Stores hired just 2,900 workers combined in October, November and December to prepare for the holidays - and cut 5,600 jobs in January. Between the stores that closed and the ones struggling to survive, a lot of "permanent," non-seasonal jobs disappeared in January.

     More - much more - in Friday's paper.

This is no big surprise, but almost four in 10 Sacramento-area homes have negative equity. Nationally, it's now one in five households that owe more than the house is worth.

The details are

here from First American CoreLogic.

Banks say they're getting high call volume today regarding the Obama Administration's Homeowner Affordability and Stabilization Plan launched Wednesday. I've taken a handful of calls, too, from people wondering how to get more information.

 I am sure many readers here already know about the dominant government Web site on the subject, www.financialstability.gov.

"Borrower Q&A" is really helpful.

 I've been working much of today on a comprehensive guide to phone numbers and Web sites to help people get started.
 
As part of that I had a brief chat with Freddie Mac spokeswoman Eileen Fitzpatrick this morning. She said the mortgage giant's Web site got 3,000 hits Wednesday within minutes of the Obama housing rescue plan's launch.

.

   The unemployment rate for Sacramento is 10.4 percent for January.

     Worse than we dared imagine. Here's the link to our online story.  

    This is the worst on record, although the records for local unemployment only go back to 1990. Chances are things were approximately this bad in Sacramento in the 1982 recession, says economist Jeff Michael at UOP.

      He and everyone else I talked to today say things will get worse.

      The December rate was 8.8 percent.

      The region lost 19,700 jobs  in January. January is always a bad month for unemployment. But things were worse than usual.

     Retailers cut 5,600 jobs - not an unusually high number for January, except when you consider that they did relatively little hiring in November and December. The January layoffs were more than the usual post-holiday cutbacks. They reflected "permanent'' jobs being sacrificed.

     It's no wonder when you consider all that's gone on, with Mervyns gone and Circuit City nearly gone. We'll probably know at the end of the month whether Gottschalks, now residing in Chapter 11, will make it.

    The construction industry also continues to suffer. It's not just housing anymore, as the commercial sector is weak. About one fourth of Local 340 of the International Brotherhood of Electrical Workers in Sacramento is out of work, said local president Greg Larkins.

     We'll have a lot more in Friday's paper.  

 I'm back from listening to Leslie Appleton-Young, chief economist for the California Association of Realtors, who says 2009 will be grim and tough on the economy. But she adds that sales will surely boom in Sacramento, which is again affordable and a beacon for first-time homebuyers.

 "The great news is you guys are booming," she told a room of several hundred area Realtors, members of the Sacramento Association of Realtors."Your market is clearing. Markets do clear."

(Click on the SAR link above to see the economist's Powerpoint presentation. Lots of details for national, state and local markets).

"Affordability is way up for first-time buyers," the economist said. "I can't imagine a better time for a first-time buyer to get in the market."

She said CAR projects that sales will rise eight percent statewide from last year - driven mostly by sales of bank repos in Sacramento, the Central Valley, Inland Empire and new outer rings of San Diego. Median prices could fall up to 25 percent statewide, but not that far in Sacramento. It's already taken the bulk of its hit to pricetags and moved on, she said.

Sellers, on the other hand, are feeling the pain. In a survey of them, the four common responses, she said, were:
- I can't make my payment.
- I'm underwater.
- I need to save my money.
- I need to get out.

Appleton-Young, a 25-year CAR veteran, seemed somewhat perplexed by the huge wave of macro events occuring in this economy and housing market. What will be the effect of the Obama Administration's plan being unveiled tomorrow? The $350 billion TARP plan and the new $787 billion stimulus? Nothing behaves in a predictable way. It's hard to know.

"Look at your old map, kiss it goodbye and start over," she advised. "We have a different market."

In a light moment she showed an editorial cartoon of a guy on a ledge ready to jump. A voice from a window says, "Wait, don't jump until you hear what Alan Greenspan thinks."
The guy on the ledge says, "I am Alan Greenspan."

 

She noted that the past year has been tough on real estate agents. Membership in the CAR, which peaked at 211,000 in 2007, is projected to fall to 158,000 this year and "my guess is we're going down to 135,000," she said.

The crowd applauded.

"The membership decline we are seeing is a weeding out of people who have had enough," she said. "They're people who came in during the boom thinking this is easy. Well, guess what? It's not."

There was lots more, some of which we will get to in a print story running tomorrow.

In a nutshell, however, she said she sees prices firming in the Sacramento area and sales rising. Months of inventory - the time it would take at today's sales rates to sell every house on the market in Sacramento County and in West Sacramento - is under four months.

That, too, drew some applause in a market where it was once feared that repos would become a pile so big that the capital region might take forever to dig out of this.

 

    The retail scene in Sacramento remains bleak. The vacancy rate jumped to 10.7 percent in the fourth quarter, up from 8.8 percent in the third quarter, according to Garrick Brown at Colliers International.

     He predicts vacancies will top 14 percent early next year.

      The big jump in the fourth quarter vacancies was due largely to the death of Mervyns, which concluded its liquidation around Christmas. Kohl's said it's taking over three of the nine Mervyns vacancies in the area, but that's only a partial fix for a sector of the economy that's been badly wounded.

    Hard to believe it's been two and a half years since Tower Records folded. Now one of its chief rivals is going out of business, too.

    Virgin Megastores is closing down in San Francisco and New York. The remaining stores in Orlando, Denver and Los Angeles will follow this summer, according to this report in Billboard magazine. 

     The Virgin store in Sacramento closed in 2005.

     The demise of the music superstore has been written about endlessly (by me and others), and the closure of Tower was a painful chapter in Sacramento's business history. Tower continues to live, in a manner of speaking, in the R5 Records Video store opened at Broadway and 16th by Tower founder Russ Solomon.

    It's a long way from AIG and the Dow's meltdown, but Sacramento's own Pacific Ethanol Inc. is continuing to go through some very tough times.

   In case you missed it, our colleague Bobby Caina Calvan had this report last week about Pacific Ethanol suspending operations at two more plants, including one in Stockton.

    Along with an earlier shutdown, the ailing company is now operating at about one third capacity, vice president Paul Koehler told me today.

    Analysts say things won't improve until ethanol profit margins recover.  Of course, that probably won't happen until gasoline prices go up a lot more.

 California's affordable housing advocates - and the unpaid contractors beind them - are gearing up an awareness campaign about all the housing projects that are frozen and stalled because housing bond funds are frozen.

 You remember Prop. 46 in 2002 and Prop. 1C in 2006? They allocated a little over $4 billion for affordable housing. Now much of that money is frozen because of the state's budget crisis. As things begin to thaw, housing supporters are trying to get in line for unfrozen funds ahead of funds for bridges and highways and "infrastructure."

"We feel all those other interests, they may be noble projects, but they don't provide houses for people," says Rob Wiener, head of the California Coalition for Rural Housing. "At a time when people desperately need affordable housing to stabilize their income and neighborhoods, it seems to me that housing is where the crisis started. The housing market is going to have to be the place where we solve it."

The coalition has put together 

this collection of projects in Sacramento and across the state that are held up and laguishing as bond funds remain frozen.

 The California Franchise Tax Board has put up a Web site for information about the state's new $10,000 tax credit for people who buy new, unoccupied homes in California. Judging from phone calls and emails to my desk there is still quite a bit of confusion about this.
 
Here are the newest details from the Franchise Tax Board itself. They should clarify it all.